Social Responsibility of

Business

Social responsibility is an ethical or ideological theory that an entity whether it is a government, corporation, organization or individual has a responsibility to society.

While primarily associated with business and governmental practices, activist groups and local communities can also be associated with social responsibility, not only business or governmental entities.

Corporate social responsibility (CSR, also called corporate responsibility, corporate citizenship, and responsible business) is a concept whereby organizations consider the interests of society by taking responsibility for the impact of their activities on customers, suppliers, employees, shareholders, communities and other stakeholders, as well as the environment.

This obligation is seen to extend beyond the statutory obligation to comply with legislation and sees organizations voluntarily taking further steps to improve the quality of life for employees and their families as well as for the local community and society at large.

There has been greater consensus around the fact that the business enterprise which makes use of the resources of society and depends on society for its functioning, should discharge its duties by enhancing the overall welfare of society.

The nature of social responsibility can be classified into:

Manner in which a business carries out its own activity.

Welfare activity that it takes upon itself as an additional function.

Social responsibility is voluntary; it is about going above and beyond what is called for by the law (legal responsibility).

Social responsibility means eliminating corrupt, irresponsible or unethical behavior that might bring harm to the community, its people, or the environment before the behavior happens.

The shareholders, suppliers of resources, the consumers, the local community and society at large are affected by the way an enterprise functions. Thus a business enterprise should be able to strike a balance between these divergent groups.

Businesses can use ethical decision making to strengthen their businesses in three main ways

To use their ethical decision making to increase productivity. This can be done through programs that employees feel directly enhance their benefits given by the corporation, like better health care or a better pension program. One thing that all companies must keep in mind is that employees are stakeholders in the business. They have a vested interest in what the company does and how it is run. When the company is perceived to feel that their employees are a valuable asset and the employees feel they are being treated and such, productivity increases.

By making decisions that affect its health as seen to those stakeholders that are outside of the business environment. Customers and Suppliers are two examples of such stakeholders. If

we were to look at companies like Johnson & Johnson, their strong sense of responsibility to the public is well known. In particular, take for instance Johnson & Johnson and the Tylenol scare of 1982. When people realized that some bottles of Tylenol contained cyanide they quit buying Tylenol, stocks dropped and Johnson & Johnson lost a lot of money. But they chose to lose even more money and invest in new tamper resistant seals and announce a major recall of their product. In the long run they gained the trust of their customers.

By making decisions that allow for government agencies to minimize their involvement with the corporation. For instance if a company is proactive and follows the pollution guidelines for admissions on dangerous pollutants and even goes an extra step to get involved in the community and address those concerns that the public might have; they would be less likely to have the authorities investigate them for environmental concerns.

Carroll’s model:

Carroll has proposed a three dimensional conceptual model of corporate performance. A firm has the following four categories of obligations of corporate performance:

Economic Legal Ethical Discretionary Firm being an economic activity, the main responsibility is economic

alongwith complying with the legal responsibilities. Ethical responsibilities are norms which the society expects the business

concern to observe even though they are not mandated by law. While discretionary responsibilities refer to the voluntary contribution of the business to the social cause like involvement in community development etc. Carroll points out that these four categories are not mutually exclusive and presented them as a pyramid of CSR.

Social Responsibility Models

DISCRETIONARY Responsibilities Be a good Corporate Citizen. Contribute resources to the community; improve quality of life.

ETHICAL Responsibilities Be ethical.Obligation to do what is right,

just and fair; Avoid harm.

LEGAL Responsibilities

Obey the Law Law is society’s codification of right and wrong;

Play by the rules

ECONOMIC Responsibilities

Be Profitable The foundation upon which all others rest

Carroll’s Model

The Pyramid of Social Responsibility

Halal’s model:

Halal’s return on resources model of corporate performance points out that a firm can only attempt to unite the diverse interests of various social groups to form a workable coalition engaged in creating value for distribution among members of the coalition. Beyond a certain level of economic activity the social issues at stake become conflicting.

Social Responsibility Models

Ackerman’s model:

There are three phases.

The first phase is one when top management recognizes the existence of a social problem and acknowledges the company’s policy by making it an oral or written statement.

The second phase is characterized by the company appointing staff specialists to study the problem and provide recommendations.

The third phase involves the implementation of the social responsibility programmes.

Promoters, Directors and Top Management:

The values and vision of promoters and top management is a key influencing factor.

Stakeholders: Attitude of various stakeholders like shareholders, creditors, employees etc. also affect the social orientation of a company.

Societal Factors: Social orientation could also be affected by the expectation of the society from the Corporation. Eg: A resourceful firm located in a poor community may be expected to contribute to the development of education facilities of the locality etc.

Factors affecting Social Orientation of and Enterprise

Industry and Trade Associations:

They influence the behaviour of firms by establishing professional and ethical codes and norms.

Government and Laws: Laws to curb corruption, unfair practices etc. and the government’s view of social responsibility also acts as an influencing factor.

Political Influences:

Competitors

Resources

Society and Business are interdependent – There is a clear conviction within sections of the public that business has an obligation towards the society

Better environment for business would be conducive for future success of the Organization

Public Image: Socially responsible behavior creates a positive public image for Business.

Business has the resources and Power: Business has a reservoir of capital and expertise that is could leverage

Arguments for Social Responsibility

Let Business try

Prevention is better than Cure. Social involvement of business would foster a harmonious and healthy relationship between society and business to the mutual benefit of both.

Shareholder interest: Business will prosper from an improved social environment

Avoidance of Governmental Regulation: If business is perceived as meeting its social obligations, costly and restrictive governmental regulations can be avoided.

Social responsibility like recycling of waste may have favorable financial effects

Profit Maximization: Economic efficiency of business should be the top priority and the sole mission of business. In this situation decisions are controlled by their desire to maximize profits for the shareholders while reasonable complying with law.

Society has to pay the Cost: Costs of social responsibility will be passed on to the society and eventually it is the society which has to bear them.

Lack of social skills: Business managers are goods at solving matters relating to business and not very effective at solving social problems as their outlook is primarily economic.

Business has enough Power: Business already has enough social power and the society should not take any steps which give it more power as it could mould social values.

Arguments against Social Responsibility

Social Overhead Costs: Cost of social responsibility will not immediately benefit the business. Why spend money on an object, benefits of which will be realized only in future.

Lack of accountability: Businessmen have no direct accountability to the people. Unless the society can develop mechanisms which establish direct lines of social accountability from the business to the public, business must not stay away from social activities.

Friedman’s Views: Friedman asserted that if managers spend corporate funds on projects not intended to maximise profits, the efficiency of the market mechanism will be undermined and resources will be misallocated within the economy.

Many companies involve themselves in social

activities because of the tax exemptions on the income spent on social purposes.

Businesses response to social responsibility tend to fall within four categories:

Social Opposition: View taken by business is that they have no obligation to the society in which they operate.

Social obligation: Companies believe that they have an obligation to obey the law.

Social response: Position taken by companies which believe that their social responsibilities are as dictated by law and will on selective basis go beyond the legal requirements. These units may volunteer to participate in limited socially responsible efforts, but not until they are convinced that the benefits outweigh the costs.

Social contribution: Position taken by Companies which believe that they have a deep obligation to serve the society.

Social Responsibility Strategies

Shareholders: The primary business of a business is to stay in business. To safeguard the capital of the shareholders and to provide reasonable dividends and returns to its shareholders.

Employees : The success of the organization depends largely on the morale of the employees. Employee morale depends on employer-employee relationship. The responsibility of the organization to the workers include:

Payment of fair wages Provision of best possible working conditions Establishment of fair work standards Provision of labor welfare activities Arrangement of proper training of workers. Reasonable chances of promotion Proper recognition, appreciation etc. Installation of an effective grievance handling system

Responsibilities towards different sections

Consumers:

The consumer is the king and is the foundation of any business venture. Important responsibilities of the business to the customers are:

Improve efficiency so as to increase productivity and reduce prices, improve quality and smoothen the distribution system so as to make the products easily available.

To do research and development so as to improve quality To supply goods at reasonable prices, even in case of a sellers

market To provide after sales sevice To ensure that the product supplied has no adverse effect. To provide sufficient information about the product To avoid misleading customers by improper advertising etc.

Responsibilities towards different sections

Community:

Taking steps to prevent environmental pollution Rehabilitating the population displaced by the operation

of the business Assisting in the overall development of the locality Taking steps to conserve scarce resources and develop

alternatives Improve the efficiency of the business operation Contribute to R & D Development of backward areas Promotion of ancillary and small scale industries Contributing to welfare activities like promotion of

education etc.

Meaning:

Social audit is a tool for evaluating how satisfactorily a company has discharged its social responsibilities. Social audit enables the public as well as the company to evaluate the social performance of the company.

Social audit involves: Identification of the firm’s activities having potential

social impact Assessment and evaluation of the social costs and social

benefits of such activities Measurement of the social costs and benefits Reporting

Social audit

Objectives and Benefits of Social Audit:

Evaluate the social dimension of the performance of the company.

Take measures to improve the social performance of the company on the basis of feedback provided by the social audit.

Social audit increases the public visibility of the organization.

In case the social audit reveals a sociialy commendable performance, it helps boost the public image of the company.